Make My Money Work For Me, Treat it as an Employee!

We all need an employee that will be there for us for many years, through thick and thin.  Even better is an employee that can directly help us make more money, and perhaps someday do all the work for us while we focus on other things!  The ultimate: the employee won’t ever talk to you, and can be monitored at all times.  The last point was for you controlling types 🙂

That employee is money!  When somebody says “I want my money to work for me”, it sounds like they’re at least on the right rack with intent.  We can work hard all our lives, and save money without thinking of it as anything more than just that: savings.  It’s a simple approach, but one that can really be costing us.  Stuffing cash under the mattress is still saving, but if it’s not compounding then it’s losing purchasing value in the absence of deflation.

Maybe one way to look at it is that you’re the CEO, and you can’t accomplish your goals by yourself.  You need help, and you need the right mix of employees to help you get where you need to be with your business.  Then, your business can reach its goals and you can bask in the glory of that success!

But first, you need to assemble that team of employees.    In the case of personal finance, those “employees” are like investments and asset classes.  Here are some things to consider:

• Don’t hire employees who all have the same skills and background.   No business would do that, right?  Just as a business needs some diversity in experiences, you’ll need to diversify your portfolio.  In other words, using this analogy with your money, don’t pull all your eggs in one basket.  Rather, practice effective asset allocation.
• Look at their work history.  Just as a CEO would take a close look at a potential key new hire’s background in order to gauge potential future success, you need to look at the resume of your financial “employee”  For example, if you’re looking at making an investment, analyze it to see if it’s a good fit for your portfolio. In other words, do your homework when making investment choices.
• Hire for the right business cycle.  If a business is in growth mode, it can pay to take on some higher risk employees who might be fresh, full of energy and new ideas.  If a business is more mature, not in all out growth mode, and has stockholders or Wall Street to placate, it might get more conservative with its hires.  In other words, translating this to your investments, take more risks when starting out, and fewer risks when closer to retirement.

You get the analogy here.  Just like a business leader assembles the right talent to reach success while managing risks, each can do the same with our money by managing it in a way that entails investing wisely.

Ultimately, the more we put money to work for us and the more effective we are at getting it to work hard, the less we have to work going forward.  If a person had $100k earning 5%, that’s $5k per year.  If that same person had $1 million earning 8%, that’s $80k per year and much less pressure on us.  Which is great, because money is an employee that doesn’t feel pressure 🙂

Do you ever think about how hard your money is really working for you?